How Can I Start Predicting My Employee’s Sales?
Predicting your sales revenue is extremely important for any sales manager and is imperative to a business’s success. Sales forecasting is like a guidebook that will help you set realistic quotas, track employee’s sales records, and can even reveal where money and resources should be allocated to increase or propel growth.
The most important factor in forecasting is accuracy. The opportunity data that impacts forecasting changes daily. In order to drive accuracy, you must have a complete and up to date picture of your entire pipeline.
Where Do I Even Start?
If you are new to forecasting the first step is to understand how sales are calculated for your company. For instance, is this a one-time transactional purchase for goods and services or annual recurring revenue (ARR) in the case of most software products? The second is to determine what type of forecast you want to conduct. The below options rank from simple to complex:
- Weighted forecast by opportunity stage.
- Top-Down Forecasting based on historical data including win rates and existing pipeline
- Deal Level Forecasting
- Combining deal level forecasting with top-down statistical forecasting
Let’s Start With the Most Basic Forecast:
Generic Weighted Pipeline by Stage.
In most cases, your CRM will provide this level of analysis. You can also easily conduct this analysis in a spreadsheet as well. In this overly simplified mode, you determine a set percentage for each stage. For example, if you have 5 stages in your sales process it may look like this: Stage 1 = 10%, Stage 2 = 20%, Stage 3 = 50%, Stage 4 = 75% Stage 5 = 90%. You would then calculate the total pipeline, or opportunity value, in each stage and multiple it by your percentage or “weighting”. Then add up each number and you have your total weighted forecast.
- PROS: Simple, easy to understand, and quick to create.
- CONS: Inaccurate and missing many variables as it relates to actual win rates, deal sizes, team variations, and many other variables that impact accuracy.
Basic Conversion Rate Forecasting:
History can be very helpful when it comes to forecasting. In this scenario, you leverage your past results to inform your future decisions. If you want to go a bit deeper you can swap out your assigned percentages with actual win rates. First, we want to calculate the average win rate for the team. By taking the total number of won opportunities and dividing it by the total number of qualified opportunities. The second step is to calculate your ACV or Average Contract Value. This will give you the flattened more conservative view of each deal value. By taking the open opportunity count and multiplying it by the ACV you will get a pipeline value. Then multiply this value by the Win Rate. This is similar to our weighted pipeline but takes into account actual results rather than fictitious values.
- PROS: Higher accuracy and the ability to predict future periods or opportunity targets for each seller to achieve quota.
- CONS: Each seller’s win rate and ACV tend to be different. This also may include outliers. Outliers are deals that are much larger or much smaller than your normal deals. Which in turn will make your ACV less accurate. To increase accuracy you must calculate each seller’s Win Rate and ACV compared to their individual open pipeline. This can be tedious but leads to greater accuracy.
Additionally, your ACV and Win Rate are always changing. This is another reason why you cannot just forecast sales once every quarter. Your company might have just done a massive marketing campaign which increased your sales in the past few weeks. Are those sales slowing down? What percentage of those sales are closing? Knowing these answers could influence the direction you should be taking as a sales manager.
Now Let’s Talk About Deal Level Forecasting:
In this scenario, we are evaluating deals with our sellers to get a feel for where they are, how they may finish, and the risks that impact each deal. Here are some tips to stay on track:
- Have a timeline. – Make sure you nail down when you need your sales reps to close deals. Familiarize yourself with how long it takes from initial contact with a customer to when they sign with you.
- Make sure your reps are on the same page. – Talk about each stage of the process where a lead becomes a customer. Assign percentages to each stage that defines how likely it is for the sale to close. For example: after the first call, there is a 10% chance the deal will close. Although, after a product trail, there is an 85% chance the deal will close. Assigning percentages to stages provides context to the sales figures as well as a realistic idea of what deal will close by a certain time.
- By aligning your sellers to the forecasting methodology they will have a better understanding of the process allowing you to evaluate deals in a set framework.
- Now you as the manager need to separate fact from fiction. The framework is your guide to the rep’s perspective. However, sales is an emotional game, and sellers become attached to deals. By identifying patterns in your historic data you can identify when sales reps have a higher likelihood of winning versus losing deals. This may relate to sales cycles, days in stage, and the access to decision-makers.
Why Should I Forecast My Sales?
- Forecasting helps you stay on top of your data. You will be able to compare your past sales history with the sales that are currently transpiring. This is a way to check your business, you will be able to see if your sales are higher or lower than they were last year or even last quarter.
- You will be able to tell your reps what sales you should be focusing on and what sales can wait until the next quarter. Historically, if deals usually close after a demo, then at the end of the quarter your team should focus on those deals and leave the others for another day.
- This prediction can help you with hiring decisions. If the forecasted demand for sales is predicted to increase by 40%, it might be a good idea to start looking for a new sales rep.
Pitfalls of Sales Forecasting to Avoid
- It can often be difficult to figure out what kind of sales forecasting is most beneficial for your unique business.
- Data can be misleading at first glance. A loss in a salesperson can skew your sales forecasting results. You must make sure you not only have accurate data, but you also understand the data so that you can interpret the results and the implications.
- The numbers can be confusing. Looking at a spreadsheet full of numbers can not only be hard to understand, but it can lend itself to mistakes. Without proper formatting, it can be very easy to skip over the fact that a sales rep’s sales have gone down by 30%.
- Forecasting can be extremely time consuming and the data changes quickly. By the time you have the completed forecast, you may have to start all over again because there has been new data presented to your company.
The Best Way to Forecast
Many sales managers are in the same position; spending hours deciphering forecasting data. This is why there is now software that allows for much more accurate and useful data for managers. Switching to forecasting software has many benefits:
- Tracking the exact moment when sales are picking up or dropping off
- The ability to analyze stage by stage history which gives a much tighter view of win rates by stage.
- Slippage rates are another common challenge for sales managers. When deals look like they are closing toward the end of a quarter or sales period but push out this can drastically reduce your accuracy. Calculating slippage is incredibly difficult to do manually.
- Easily identifying key changes in the data.
- Quickly adapting and making adjustments to your sales strategies when necessary.
- The data will no longer be represented in numbers and spreadsheets, but in intuitive graphs that will help you understand the changes in your sales statistics.
- Provides coaching for your sales reps.
- Through the statistical analysis, machine learning, and artificial intelligence software can analyze more information in a second that a human could in a week. Giving you much more accurate forecasts and allowing you to ditch the spreadsheet. Providing significantly more time to focus on closing deals and adjusting strategies.
You are busy enough, let Canopy create a software solution personalized for your company’s forecasting needs. Request a demo today to see just how easy sales forecasting can be!
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